Home buyers who are lacking a down payment of 10-20% can realize great help from an FHA mortgage loan. Qualified borrowers can come in with the required minimum down payment of 3.5% on an FHA home loan in Orange County and other areas around the country.

If the home buyer wanted a traditional loan with less than 20-percent down, it oftentimes has a mortgage insurance requirement. While FHA loans do have their own drawback of FHA mortgage insurance as a requirement.

Nearly every mortgage loan originated with 20% or less down payment necessitates some type of mortgage insurance. Whenever the lender provides a loan to a borrower they need to insure against them falling behind on their payments.

The usual method this is handled is the borrower pays it monthly and is included into the mortgage payment. On a traditional loan, borrowers obtain private mortgage insurance which may be be terminated once the borrower's home loan-to-value gets to 78%.

An FHA mortgage insurance premium (MIP) is what FHA loan borrowers have to pay. In addition, there is an upfront 1.75% fee of the loan amount. Fortunately, that fee can be added into the loan balance, which makes the monthly payments a little bit more.

Based on the size of the loan, down payment, and mortgage term, the actual monthly MIP cost can range from 0.45% to 1.05%. Let's say, you have a $500,000 FHA loan with a 4-percent down payment. Your MIP cost will be 0.85%, or approximately $4,250 every year.

FHA MIP has more variations than how private mortgage insurance is applied to a conventional loan. Borrowers are required to FHA MIP fr 11 years if they bring in a 10% down payment when the home is purchased, no matter if the property's LTV drops to under 78.

Borrowers are required to pay an FHA MIP premium for entire loan term if they come in with under 10% down payment and are not offered an option to cancel. Only FHA loans completed prior to June 3, 201 3have an option to cancel MIP once the loan reaches a 78% LTV and if the loan was paid on time.

Another method to successfully remove FHA MIP is to refinance your FHA loan into a traditional mortgage, a conventional loan. If you qualify for a VA loan because of For borrowers who served in the military for a specific period or are spouses of veteran, you may be to refinance to get rid of mortgage insurance.

Keep in mind a traditional loan may require enough equity as a viable refinance option OR you can still do the refinance and wait until your home attains the magical 78 LTV. In some areas of California, housing values may appreciate fairly quickly like in 2-3 years.

This may save you thousands of dollars in mortgage insurance expenses. Keep in mind, even if the new conventional loan requires PMI quickly, the premiums are lower than FHA mortgage insurance premiums and you cancel it later on.

With that being said, you can see that FHA mortgages are an excellent way to get your foot into being a homeowner. They have very low interest rate and presents you the opportunity to owning a hard asset when no other loan options are available.

Refinancing into a conventional loan from an FHA loan can help you save you a lot money over the course of your loan.You can invest the savings difference as well into a retirement account.